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Fraud*According to the Collins English Dictionary 10th Edition fraud can be defined as: "deceit, trickery, sharp practice, or breach of confidence, perpetrated for profit or to gain some unfair or dishonest advantage".[1] In the broadest sense, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation. Defrauding people or entities of money or valuables is a common purpose of fraud, but there have also been fraudulent "discoveries", e.g. in science, to gain prestige rather than immediate monetary gain*As defined in Wikipedia

Sunday, July 10, 2011

Another aspect of Goldman Sachs's business dealings lies in its efforts to manipulate prices of derivatives in May 2007. Trader Michael J. Swenson sought to lower derivative prices artificially so that they would gain in value as mortgage securities fell. Even though that idea was abandoned, it shows how Goldman Sachs worked its magic as shown in documents accompanying the report of the Permanent Subcommittee on Investigations.

Goldman Sachs Group Inc. (GS) mortgage traders tried to manipulate prices of derivatives linked to subprime home loans in May 2007 for their own benefit, according to a U.S. Senate report.

Company documents show traders led by Michael J. Swenson sought to encourage a “short squeeze” by putting artificially low prices on derivatives that would gain in value as mortgage securities fell, according to the report yesterday by the Permanent Subcommittee on Investigations. The idea, abandoned after market conditions worsened, was to drive holders of such credit-default swaps to sell and help Goldman Sachs traders buy at reduced prices, according to the report.

“We began to encourage this squeeze, with plans of getting very short again,” Deeb Salem, a trader in the structured product group, said in a 2007 self-evaluation excerpted in the report. Swenson, Salem’s supervisor, sent e-mails in May 2007 urging traders to offer prices that will “cause maximum pain” and “have people totally demoralized.” In interviews with the committee, Salem and Swenson denied attempting a short squeeze, the report said.

Salem “claimed that he had wrongly worded his self- evaluation,” the report said. “He said that reading his self- evaluation as a description of an intended short squeeze put too much emphasis on ‘words.’”

The subcommittee cited the episode as an example of how Goldman Sachs traders placed the firm’s interests ahead of its clients’ as the value of mortgage-linked investments tumbled in 2007. The subcommittee, led by Senator Carl M. Levin, a Michigan Democrat and Tom Coburn, Republican of Oklahoma, has called on regulators to craft strict bans on proprietary trading and conflicts of interest to keep the problems from recurring.

‘Poor Quality Investments’

“Conflicts of interests related to proprietary investments led Goldman to conceal its adverse financial interests from potential investors, sell investors poor quality investments, and place its financial interests before those of its clients,” according to the subcommittee.

Goldman Sachs traders abandoned the short-squeeze attempt after discovering on June 7, 2007, that two Bear Stearns Cos. hedge funds that specialized in subprime-mortgage investments were collapsing. Salem e-mailed Swenson and another colleague to suggest trying to buy short positions, known as “protection,” on collateralized debt obligations, or CDOs, from hedge fund Magnetar Capital LLC, according to the subcommittee’s report.

“We need to go to magnetar and see if we can buy a bunch of cdo protection… Can tell them we have a protection buyer, who is looking to get into this trade now that spreads have tightened back in.”

‘Great Idea’

Swenson expressed “no concerns about the proposed deception” and responded to Salem that it was a “great idea,” according to the report.

The report comes almost a year after the committee spent more than 10 hours grilling Lloyd C. Blankfein, Goldman Sachs’s chairman and chief executive officer, and six current and former employees in one of the most hostile political showdowns in the aftermath of the financial crisis.

That hearing happened 12 days after the Securities and Exchange Commission sued New York-based Goldman Sachs for fraud in a case that the firm settled for $550 million in July.

In an effort to address questions raised by the SEC lawsuit and the subcommittee, Blankfein convened a committee of Goldman Sachs executives to review the firm’s practices. In January, the firm published 39 recommendations aimed at better managing conflicts and client relationships, as well as governance and employee training.

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COMMENTS:

Anonymous
said...

Geithner says hard times to continue for many

Geithner tells NBC's "Meet the Press" that it's a very tough economy. He says that for a lot of people "it's going to feel very hard, harder than anything they've experienced in their lifetime now, for a long time to come."

Charles D. Ellis wrote “The Partnership” about Goldman Sachs andadmitted that its trading expertise came from J. Aron Co. so those whorush to always defend Goldman and are given “awards” for otherwritings and are sent out to defend them, should read his book. Thistrading expertise acquired from the commodity world made Goldman alean-mean-trading-machine. But there was always the risk of governmentintervention and after the Salomon incident, Goldman turned toorganize a takeover of government. In just four years, there was theMexican bailout of 1995. Goldman planted Robert Rubin now as Secretaryof the Treasury. Rubin drew serious criticism from Congress for usinga Treasury Department account under his personal control to distribute$20 billion to bail out Mexican bonds, of which Goldman was a keyholder. This was Goldman’s first guaranteed trade using government asthe bailout. On November 22, 1994, the Mexican Bolsa stock marketadmitted Goldman Sachs and another firm to operate on that market. The1994 economic crisis in Mexico threatened to wipe out the value ofMexico's bonds held by Goldman Sachs ending the firm right then andthere. Rubin saved the day.

Pinch-Hitting for Peterson. Part 1: How Progressives Helped Put Social Security on the Chopping BlockBy L. Randall Wray

It’s official. Obama has decided to become a one term president. He caved in to the Republicans, agreeing to gut Social Security in order to get them to agree to raise the debt limit. This was never a real trade-off, as it made sense only within the Washington beltway. Obama has adopted the Jimmy Carter approach: promising pain and more pain, presenting a dreary (and false) message of no hope, just mindless human sacrifice to please the gods on Wall Street.

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And although the Comex seems to be the focal point of all this discussion, there are some things that suggest that scandals may rock the London and even the Canadian exchanges and their banking systems, reaching perhaps to the higher levels of government. There seems to be a new Triangle Trade in fraudulently misrepresented financial instruments going across the Atlantic, which includes the Caribbean and some of the other tax havens.

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It is impossible to calculate the moral mischief, if I may so express it, that mental lying has produced in society. When a man has so far corrupted and prostituted the chastity of his mind as to subscribe his professional belief to things he does not believe he has prepared himself for the commission of every other crime. … Thomas Paine 1737-1809, Anglo-American Political Theorist, Writer

Laws just or unjust may govern mens actions. Tyrannies may restrain or regulate their words. The machinery of propaganda may pack their minds with falsehood and deny them truth for many generations of time. But the soul of man thus held in trance or frozen in a long night can be awakened by a spark coming from God knows where and in a moment the whole structure of lies and oppression is on trial for its life.: Sir Winston ChurchillWhen governments fear the people, there is liberty. When the people fear the government, there is tyranny. - Thomas Jefferson

When cheaters prosper, we end up with the worst possible system and to call it a free market system is an obscenity. -William BlackWhen the people fear their government, there is tyranny; when the government fears the people, there is liberty." - Thomas JeffersonI believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property - until their children wake-up homeless on the continent their fathers conquered. Thomas Jefferson - 1802

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